Reaction Paper for Economics of the Public Sector

Topics: Public good, Market failure, Externality Pages: 2 (364 words) Published: May 20, 2013
The Economics of Public sector, Firm Behavior
A reaction paper

Do you consider taxes as positive or negative externalities? Negative externalities occur when the effects of decision that are not considered/taken into account by the decision maker are detrimental to others. On the other hand, if the effects are beneficial to others, that is a positive externality. The government’s ability to serve the people depends upon the taxes that are collected. Taxes are indispensable in the government operation and without it, the government will be paralyzed. So, this not only means imposition of financial charges or other levies, upon a taxpayer (negative externality) it is also a mean of raising money to spend on armies, roads, schools and hospitals, and on more indirect government functions like market regulation or legal systems for the use of people (positive externality). Taxes are levied to address externalities; for example, tobacco is taxed to discourage smoking. Hence, taxes are both negative and positive externalities.

When public goods become private goods and vice- versa? A private good is an item that yields positive benefits to people that is excludable. Its owners can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits. It is also rivalrous; consumption by one necessarily prevents that of another. A public good is both non-excludable and nonrivalrous. Unlike public goods, private goods are less likely to have the free rider problem. For instance, although many people think a television signal is a public good, cable television services scramble their transmissions so that nonsubscribers cannot receive broadcasts easily. In other words, the producers have figured out how to exclude nonpayers. Private goods may however, become public goods. Shopping malls, for instance, provide shoppers with a variety of services that are traditionally considered public goods: lighting, protection...
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